Credit analysts at REDD Intelligence say that the Wednesday-scheduled International Monetary Fund (IMF) Executive Board review of Angola will give an early signal on how global powers wish to address distressed African countries and the aftermath of China’s last decades lending spree as well as other commercial creditors.
REDD Intelligence, one of the leading providers of emerging markets intelligence globally, in a new report on the Prospects for African Eurobonds Post-COVID ahead of the IMF meeting , revealed that China is unlikely to agree to an extension of DSSI to the end of 2021 and a full inclusion of loans from China Development Bank as demanded by the US, G7 and World Bank without concessions in other areas, such as a further increase in the IMF’s lending capacity and the access limits of associated programmes.
Meanwhile, according to the report, the extension of the G20 Debt Service Suspension Initiative (DSSI) to 2021 has emerged as a key battleground between China and the US, with significant repercussions for developing countries currently battling the economic fallout from Covid-19. However, whether to extend the DSSI and what loans are to be included in the scheme will be a key issue at the upcoming IMF Fall meetings in October and the G20 Summit in Saudi Arabia in November, this year.
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On the other hand, the current repayment schedules for the DSSI and the IMF emergency funds coincide with a ramp-up in African Eurobond redemptions from 2024 onwards. Although, some countries, such as Ghana, are already paying as much as half of their government revenue in interest costs on their borrowing and are likely to need restructuring at some point during the coming five years, the report observed.
According to the report the willingness-to-pay is likely to become an increasingly important factor, as the increasing number of new political parties and elite groupings coming into power will raise the risk that sovereigns will decide to no longer honour debt taken on by previous administrations.
However, it noted that the treatment of the currently most distressed borrowers, such as Angola, Republic of Congo and Zambia, will influence the decision of other countries as to what extent they will service their foreign debt obligations.
Meanwhile, the calls for private-sector participation in the DSSI will continue to go unheeded, it further stated, but it added that G20 members are unlikely to be far apart on the need for private-sector involvement in future debt restructurings of low-income countries’ debt.